Many small business owners decide to pay individuals they have working for them as sub-contractors instead of putting them on payroll as an employee. Many business owners ask how the CRA or WSIB would find out and assess someone as an employee. However, if it were that easy, every company would pay workers as contractors. The question then becomes one of risk.
How could the CRA know if my sub-contractor is really an employee ? There are a number of ways this could happen.
Your worker may apply for Employment Insurance if you have no work or fire them.
As an employer you can’t lay off a sub-contractor. You would simply not continue to use their services. As they are not considered employees, they have not been remitting EI premiums, nor have you been remitting your company’s portion of the tax. Then EI office will inform your former worker of this, to which if they will likely reply that they were in fact your employees, would trigger an audit of your payroll to review the worker’s request and ultimately lead to a re-assessment of the taxes if they are found to be employees.
The CRA or WSIB could do an audit of your company or its payroll.
Government audits and reviews are a normal occurrence for businesses and you could expect to be visited by a government auditor at some point in time. If the CRA does an audit of your payroll or your company they will review all your financial statements, banking records , cheques etc. which will be the basis of determining whether you are paying individuals as sub-contractors or not.
Your worker could get injured while on the job.
This is a very common, especially in industries where injuries are more frequent or common. If your worker is injured in an accident and goes to the hospital, the hospital is obligated to report the work injury to the WSIB. This will lead to a review or audit of your business if it is determined that premiums were not remitted for the injured worker. The chances of any of these happening to your company will depend on the nature of your business along with your relationship with the worker in question. CRA and Provincial Workers’ Compensation boards are very aware that people are being paid as sub-contractors instead of employees. This being the case, all agencies have special audit techniques to help them find these sorts of situations. The tax court is filled with many cases involving the employee versus sub-contractor issue.
If you are facing an Audit, Ravinder Makkars’ professional advice will save you time, anxiety, and may help reduce the assessment if you are entitled to. Our specialties are Audit of Payroll, HST , WSIB, and Tax Audits.
For further information contact us at: 905-791-6666 or e-mail: makkarcpa@hotmail.com